Breaking Down the GOP Tax Bill

The GOP tax bill, called the Tax Cuts and Job Acts (TCJA), has been criticized for being rushed through Congress with ink literally still drying on the margins. The bill is large, complicated, and stuffed to the gills with language benefitting (and written by lobbyists from) special interest groups and big corporations. At this point, we do not know the entirety of what is contained in the Senate bill because of how little time Senators had to read over the bill. While the bill has passed both the House and Senate, each has their own version of the bill which must now be reconciled.

Here is the big picture: the TCJA would cut $5.9 trillion in taxes over 10 years (including the corporate tax rate, a larger standard deduction and cuts to individual income taxes), while raising $4.5 trillion in taxes (in part by cutting the personal exemption [See the Dependents section below] and multiple deductions for individuals). This discrepancy would create $1.4 trillion in additional federal deficit (Republicans added $1.5 trillion to their latest budget). The Tax Policy Center found that, rather than being the economic booster the GOP has trumpeted, the TCJA would add just 0.7% to the US gross domestic product (GDP) in 2018, steadily decreasing to 0.1% by 2026 (one year before the proposed tax cuts for individuals would end). This GDP growth falls far short of the 3-5% GDP growth proposed by Trump's Council of Economic Advisors. Additionally, even with the additional revenue factored in, the deficit would still balloon by $1.23 trillion over 10 years. Therefore, the bill falls far short of paying for itself as its advocates claimed it would.

By the numbers:

The TCJA would reduce the corporate tax rate (tax placed on the profit of an individual firm) to 20% from a top rate of 35% - costing $1.5 trillion over 10 years (the same amount as the deficit created by the TCJA)

The TCJA would nearly double the standard deduction ("the amount of income that is not subject to tax and that can be used to reduce a taxpayer's bill"). In the Senate bill, for single payers, the standard deduction would be increased to $12,000; for joint filings it would increase to $24,000.

In the Senate plan, there would still be seven individual income tax brackets; the House would decrease it to four brackets. The Senate plan would slightly decrease the tax rates in these income brackets, but these tax cuts for individuals would expire in 2027.

Small businesses and pass-through loopholes:

One of the most controversial aspects of the TCJA involves cutting the top rate on "pass-through" businesses to 25% from the current top rate of 39.6 percent. Pass-through businesses are ones where the income passes through to owners who don't file corporate income taxes; instead, the income is filed on the owners' individual tax returns (to be taxed at normal income tax rates). Pass-throughs include proprietorships (where one person owns a business), partnerships (joint ventures between at least two people) and limited liability companies and S corporations (both of which combine elements of corporations and partnerships). Many pass-through businesses are small business and at face level this cut is solely to help small businesses. However, it creates a loophole for the 1 percent to utilize the lower pass-through rate to avoid the top individual 38.5% income tax.

In order to avoid that loophole, the House proposed that only 30% of an individual's income would be eligible for the pass-through rate, while the other 70% would be subject to ordinary income taxes. It also requires people claiming the deduction to pay wages to someone else, and also by declaring those in certain industries ineligible for the break. The Senate proposed to continue taxing pass-throughs at ordinary income tax rates but give them up to a 17.4% deduction for qualified pass-through income. Anyone can qualify for this deduction regardless of income, and there are far fewer rules attempting to prevent tax avoidance.

Many pass-throughs already pay 25% or less, as 90% of sole proprietorships have less than $100,000 in income, so they wouldn't benefit from the House's plan. As such, this change would not benefit most small businesses, only the very rich and their pass-throughs.

Parents will be able to pay for K-12 private school tuition using tax-free college savings accounts, while the bill would bar public school districts from using cost-effective, tax-free “advance refund bonds” to refinance school bond debt. State and local school tax revenues will also no longer be fully deductible, making advocates that it will be more difficult for states and counties raise money for public schools. In short, the bill favors private school over public school.

For teachers, the House bill eliminated a $250 deduction for teachers who have to buy their own school supplies. The Senate bill doubles this deduction to $500.

The House bill would repeal the tax deduction for student loan interest, which allows people repaying student loans to cut their tax burden by as much as $2,500 annually. The House version also taxes tuition waivers — which allow many graduate students to attend school tuition-free — as income, raising concerns from many students who said such a tax would make their education unaffordable. The Senate leaves those provisions intact. The Senate plan also excludes a House proposal to roll three higher-education tax credits into one benefit.

Dependents:

The child tax credit is increased to $1,600 from $1,000.

A $300 credit would be available for each non-child dependent.

The personal and dependent exemptions would be eliminated in order to attempt to cover the cost of the tax plan. The exemptions allowed each person (the tax filer, their spouse, and their dependents) to make $4,050 of their income exemption from taxes. Although the increase on the standard deduction is meant to offset this loss, it will not do so for many larger families.

Special interest inclusions:

Repeal the individual mandate to buy health insurance. Defended as a way to cover the cost of this bill, experts have said this will lead to a large amount of healthy people leaving the health insurance market, thus driving up premiums. Ultimately, millions could lose coverage, according to policy experts. The CBO estimated that without the mandate, health insurance premiums would rise 10% in most years over the next decade and 13 million more people would be uninsured by 2027.

Car dealerships would be able to fully deduct interest on loans.

"Republican Sen. Rob Portman of Ohio, where big private jet companies are based, reportedly got them exempted from a levy known as a "ticket tax.""

In the Senate bill, certain oil and gas firms are allowed to take advantage of the proposed 17.4% pass-through deduction. This provision was added by Sen. John Cornyn, R-Texas, whose campaign received more than a million dollars from the oil and gas industry in 2013.

Part of the Arctic National Wildlife Refuge would be opened for drilling for oil.

Cruise lines will be eligible for lower tax rates.

The taxation of alcohol is modified extensively.

Both versions of the bill include anti-choice language coded as a college affordability clause. Under this provision, human fetuses would be defined as a person.

An unborn child means a child in utero, and the term child in utero means a member of the species homo sapiens, at any stage of development, who is carried in the womb."

This explicitly provides Congress a way to repeal Roe v. Wade.

Private jet owners would no longer have to pay certain taxes on their payments to companies that manage aircraft.

In the Senate bill, there is a clause stating, "no deduction is allowed for any settlement, payout, or attorney fees related to sexual harassment or sexual abuse if such payments are subject to a nondisclosure agreement." Apparently until now, people could write off tax deductions on sexual harassment settlements. Considering all the cases of sexual assault and harassment relating to Congressmen, this clause is interesting.

Citrus growers can deduct the cost of replanting trees.

A repeal of the alternative minimum tax, which primarily affects households with incomes from $200,000 to $1 million. However, the AMT was designed to keep wealthy taxpayers from using loopholes to avoid paying taxes. It gets triggered when taxpayers make a certain income. It then eliminates some deductions for those in higher brackets to make sure they pay taxes. But because it was not automatically updated for inflation, more middle-class taxpayers were getting hit with the AMT each year, which is ostensibly why a repeal of it is included in the bill.

The Senate bill does not propose eliminating the estate tax like the House does, but they are proposing to double the exemption levels -- currently set at $5.49 million for individuals and $10.98 million for married couples. At today's levels, only 0.2% of all estates ever end up being subject to the estate tax. As such, this is another inclusion that would only benefit very few, very rich Americans.

This is just an overview of many of the important provisions that we know of. The Senate bill was provided to Senators just hours before the vote, with additions written in the margins. As Senators actually finish reading the bill, it is likely more buried secrets will emerge. Ultimately, this bill favors the rich (and the donors of the GOP) and includes many special interest clauses in order to gain the support needed to pass. Additionally, many of these special interest provisions make changes that the Senate could not pass on their own, such as opening up a nature reserve (a for oil drilling, repealing the mandate to buy healthcare, and defining fetuses as people.